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Tan set to take back full control of PAL: Taipan eyes Etihad as new partner

Lawrence Agcaoili, Jerome C. Morales (The Philippine Star) - August 3, 2014 - 12:00am

MANILA, Philippines - The group of taipan Lucio Tan expects to take back full control of flag carrier Philippine Airlines Inc. (PAL) as early as this month.

After reclaiming management control of PAL, the taipan’s next move is reportedly to take in Abu Dhabi-based Etihad Airways as partner.

A source said negotiations regarding the buyback of the 49 percent interest of diversified conglomerate San Miguel Corp. (SMC) is expected to be completed in the next few weeks, paving the way for the return of full ownership of PAL back to the Tan Group on Aug. 27.

The source said talks between the Tan Group and SMC have narrowed down to the value of the buyout as well as the terms of payment.

SMC president and chief operating officer Ramon S. Ang confirmed that the Tan Group had made a formal offer to buy back the conglomerate’s stake in PAL.

However, he clarified that negotiations are still ongoing.

“Yes, still in talks,” Ang said in a text message.

Ang is president and COO of PAL while Tan serves as chairman of Asia’s first airline.

Tan chairs the 11-man board of PAL while directors include Lucio Tan Jr., Harry Tan, Michael Tan, Inigo Zobel as well as Ang, Aurora Calderon, Roberto Ongpin, Ferdinand Constantino and independent directors Antonio Alindogan and Enrique Cheng.

Estelito Mendoza serves as the airline’s corporate secretary.

The Tan Group is reportedly raising close to $1 billion to buy back the 51 percent of SMC and to pay the advances made by the diversified conglomerate to PAL for the purchase of brand new aircraft.

In April 2012, SMC’s wholly-owned subsidiary San Miguel Equity Investments Inc. (SMEII) acquired a 49 percent equity interest in Trustmark Holdings Corp. for $500 million. Trustmark owns 97.71 percent of PAL Holdings which in turn owns 84.67 percent of PAL through PR Holdings Inc.

Since then PAL embarked on a massive fleet renewal program program with an end view of acquiring 100 brandnew aircraft. It placed an order for the delivery of 65 Airbus aircraft worth $9.5 billion.

Ang earlier said that he was confident that the buy out talks would be concluded within the third quarter of the year so as not to derail the improvement in the airline’s financial performance.

He earlier has vowed to bring PAL back to profitability after posting heavy losses over the past few years.

Another source said the Tan Group wants to buy back the shares sold to the SMC Group more than two years ago as the national flag carrier is back in the black and is set to expand its flights to the US with the upgrade in the country’s safety aviation rating back to Category 1 from Category 2 and Europe with the lifting of the ban in July last year.

The source pointed out that PAL is set to report a profit of P1.5 billion for the second quarter of the year the first time in years that the airline would be in the black.

PAL is looking forward to booking a profit of more than P1 billion this year given improving operations.

“PAL under Mr. Ang’s management, is confident it will end the year with profits given its current position. It is currently projecting net profits of more than a billion for the year ending December 2014,” the source added.

Meanwhile, another source said the Tan Group could offer up to 40 percent of PAL to Etihad Airways as a foreign strategic partner after completing the buy-back of the shares of SMC in the national flag carrier.

In April, both PAL and Etihad Airways entered into a strategic partnership agreement covering codeshare flights, loyalty programs, airport lounges, joint sales and marketing programs, a Philippines domestic air pass, cargo, and the coordination of airport operations to provide a better guest experience at their Abu Dhabi and Manila hubs.

During the formal signing of the agreement last July 10, Ang said PAL was open to taking in Etihad Airways as equity partner.

Etihad Airways president and chief executive officer James Hogan earlier said the Philippines is a very important market for the airline but pointed out that the agreement does not cover equity partnership.

Hogan clarified that the broad scope of the commercial agreement reflected the strength of the relationship between the airlines and the close ties between the United Arab Emirates and the Philippines.

Etihad Airways is finalizing the acquisition of a stake in Alitalia. It holds equity investments in Airberlin, Air Seychelles, Virgin Australia, Aer Lingus, Air Serbia and Jet Airways,

SMC associate general counsel Mary Rose Tan earlier confirmed to the Philippine Stock Exchange (PSE) that there are ongoing talks with the Tan Group.

Atty. Ma. Cecilia Pesayco, assistant secretary of PAL Holdings, also confirmed the ongoing talks between SMC and the Tan Group.

SMC’s plan to exit PAL is seen to shore up the conglomerate’s warchest in line with an aggressive expansion plan.

In 2007, the conglomerate started selling parts of key businesses into high-growth and capital-intensive sectors like power generation, mining, infrastructure and telecommunications.

Since the entry of SMC, PAL has embarked on a massive refleeting program aimed at acquiring 100 new aircraft to replace its fleet.

 

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